NEWFOUNDLAND-LABRADOR PREMIER ANNOUNCES MULTI-BILLION DOLLAR

UNCLAS HALIFAX 000061 SIPDIS SIPDIS STATE FOR WHA/CAN, EB/ESC/ISC, EB/PPD USDOE FOR IA (PUMPHREY, DEUTSCH) E.O. 12958: N/A TAGS: ENRG EPET ETRD PGOV CA SUBJECT: NEWFOUNDLAND-LABRADOR PREMIER ANNOUNCES MULTI-BILLION DOLLAR DEAL ON FOURTH OFFSHORE OIL FIELD ¶1. SUMMARY: Newfoundland-Labrador will see a much-welcome new offshore oil development project now that Premier Danny Williams has worked out a deal on the Hebron project. With an anticipated 400-700 million barrels of oil, Hebron promises to be a massive boost for the province, both for the local economy and for a Premier who is moving towards a re-election bid. END SUMMARY ¶2. Newfoundland-Labrador Premier Danny Williams announced in a press conference on August 22 that his government reached an agreement for the development of Hebron-Ben Nevis, the fourth oil field to be developed off his province. While not revealing the entire contents of the Memorandum of Understanding with the project's owners -- Chevron, ExxonMobil, Petro-Canada and Norsk-Hydro -- the Premier said the province will purchase a 4.9 percent equity stake in Hebron at a cost of C$100 million. Williams also said the province will receive more than C$16 billion in royalty payments over 25 years, with the federal government getting C$7 billion. As with the Hibernia project, the developers will use a gravity-based structure (GBS) versus the floating platform which is in use in the Terra Nova and White Rose developments. The GBS will generate significantly more economic spin-offs than the floating systems, a welcome boost for Newfoundland-Labrador which suffers from Canada's highest unemployment rates. ¶3. Summary of the Hebron Offshore Oil Field Project: --Type: Heavy oil --Location: Jeanne d'Arc Basin, 350 km southeast of St. John's --Estimated Reserves: 400-700 million barrels --Operator: Chevron Canada Resources --Detailed Geological Information: http://www.nr.gov.nl.ca/mines%26en/oil/ --History: Discovered in 1980, Hebron was first deemed non-commercial before three appraisal wells drilled in 1999 - 2000 yielded promising results. In February 2002, after a two-year evaluation, the project was considered too expensive and technically difficult to develop using existing technology. Then in 2004 an air of optimism surrounded the development when Chevron hired a project manager and opened an office in St. John's. That optimism was further fueled in April 2005 when Chevron and partners signed a Joint Operating Agreement with the aim of advancing the evaluation of the project. Momentum built with the joint evaluation focusing on a Gravity Based Structure (GBS) concept similar to Hibernia. Attention then turned to working out a development agreement with the provincial government. ¶4. Comment: As widely reported in the national media, Williams had broken off talks with the Hebron partners in the spring of 2006 over his stance that the province would not receive enough benefits from the development. The Premier resurrected negotiations earlier this summer in a move which pundits were quick to link to the upcoming provincial election on October 9. The announcement of a deal may pave the way for what pollsters are predicting will be a cakewalk election victory for the Premier. Williams has enjoyed unprecedented and consistently high rates of support from the electorate, leading even some Liberal party foes to publicly predict that their party is going to face near annihilation at the hands of Danny Williams and his Tory party. Nonetheless, Liberal Opposition leader Gerry Reid was quick off the mark in his reaction to the news of the MOU, speculating that the Premier did not reveal more specifics of the deal due to political expediency rather than proprietary business information. Reid predicted in a press interview that the electorate will not hear the full details of the deal until after the election. Regardless of the political ramifications, this announcement is welcome news to the province's offshore industry which had been very concerned on what the future might have held without the Hebron deal. End comment FOSTER